Federal financial institution regulators recently issued a joint final rule to implement provisions of the Biggert-Waters Flood Insurance Reform Act of 2012 (the “Act”) that require regulated financial institutions to accept private flood insurance policies. The regulators are the Farm Credit Administration, Federal Deposit Insurance Corporation, Federal Reserve Board, National Credit Union Administration, and Comptroller of the Currency. The final rule takes effect on July 1, 2019.

To qualify as private flood insurance under the final rule, a policy must be issued by an insurance company that meets certain conditions, and the policy must provide flood insurance coverage that is at least as broad as the coverage provided under a standard flood insurance policy (SFIP) issued under the National Flood Insurance Program (NFIP) for the same type of property, including when considering deductibles, exclusions, and conditions offered by the insurer. The final rule sets forth specific requirements that a policy must meet to be considered to provide coverage at least as broad as an SFIP.

The final rule requires that a regulated financial institution accept a private flood insurance policy that provides coverage at least as broad as an SFIP in satisfaction of the requirement for flood insurance under the applicable regulator’s flood insurance rules. The final rule allows a financial institution to determine that a private policy provides the necessary coverage if the following statement is included within the policy or as an endorsement to the policy: “This policy meets the definition of private flood insurance contained in 42 U.S.C. 4012a(b)(7) and the corresponding regulation.” A financial institution can simply rely on the statement, without independently assessing the policy. However, the final rule does not require insurance companies to include such a statement in a private policy, and a financial institution cannot reject a private policy simply because the statement is not provided.

The final rule also allows a financial institution to accept a private flood insurance policy that does not provide coverage at least as broad as an SFIP, if the private policy meets a more limited set of requirements, and the financial institution documents in writing its determination that the policy provides sufficient protection of the applicable loan, consistent with general safety and soundness principles.

Additionally, the final rule permits a financial institution to accept a plan issued by a mutual aid society in satisfaction of the requirement for flood insurance under the applicable regulator’s flood insurance rules, subject to conditions. The conditions are that the applicable regulator has determined that the plan qualifies as flood insurance for purposes of the Act, the plan provides specified coverage for the mortgagor and mortgagee as loss payees, and the financial institution documents in writing its determination that the plan provides sufficient protection of the applicable loan, consistent with general safety and soundness principles. For purposes of the final rule, a “mutual aid society” is defined as an organization (1) whose members share a common religious, charitable, educational, or fraternal bond, (2) that covers losses caused by damage to members’ property pursuant to an agreement, including damage caused by flooding, in accordance with this common bond, and (3) that has a demonstrated history of fulfilling the terms of agreements to cover losses to members’ property caused by flooding.

The CFPB recently issued A Regulatory and Reporting Overview Reference Chart for HMDA Data Collected in 2019. As previously reported, the Economic Growth, Regulatory Relief, and Consumer Protection Act created an exemption from the reporting of the new HMDA data categories for smaller mortgage loan volume depository institutions and credit unions. The 2019 Chart is updated from the 2018 version to include guidance on how to address data categories that do not have to be reported under the exemption. The 2019 Chart also provides how a lender that elects not to report a Universal Loan Identifier for an application or loan under the exemption would report a Non-Universal Loan Identifier for the application or loan.

Unrelated to the exemption, the 2019 Chart also includes additional guidance on the reporting of the Credit Scoring Model and the reporting of the Automated Underwriting System result.

As previously reported, in September 2017 the CFPB proposed policy guidance regarding what application-level Home Mortgage Disclosure Act (HMDA) data would be disclosed to the public based on the significant expansion to the HMDA data reporting items that the CFPB adopted in October 2015. Calendar year 2018 was the first year that reporting institutions collected data under the expanded requirements, and that data must be reported to the government by March 1, 2019. Not long after Kathy Kraninger became the new CFPB Director, the CFPB announced the final policy guidance regarding the application-level HMDA data that will be made available to the public. Unfortunately, by adopting final guidance that is very similar to the proposed guidance, the CFPB is emphasizing public disclosure over consumer privacy concerns.

HMDA requires the modification of data released to the public “for the purpose of protecting the privacy interests of mortgage applicants”. Under the prior HMDA requirements, the application or loan number, the date the application was received and the date the institution took final action on the application were removed from the application-level data that was released to the public. However, even under the prior HMDA requirements, there were concerns that by combining the publicly available HMDA data with other data sources, the identity of each applicant can be determined. With the significant expansion of the HMDA data items, as well as the overall increase in data on consumers that is available in the marketplace, the privacy concerns are even greater. For example, the revised HMDA data items include, among other items, the applicant’s age, income (which is currently reported), credit score, and debt-to-income ratio; the automated underwriting results; the property address; loan cost information; and, for denied applications, the principal denial reasons.

When the CFPB adopted the October 2015 revisions it deferred making a decision on which elements of the expanded HMDA data would be reported on an application-level basis. However, the CFPB indicated that it would use a balancing test to decide what information to disclose publicly, and would allow public input on the information that it proposed to disclose. At that time the CFPB advised that
“[c]‍‍‍onsidering the public disclosure of HMDA data as a whole, applicant and borrower privacy interests arise under the balancing test only where the disclosure of HMDA data may both substantially facilitate the identification of an applicant or borrower in the data and disclose information about the applicant or borrower that is not otherwise public and may be harmful or sensitive.” The CFPB echoed the balancing test approach in adopting the final guidance. However, the approach is off balance, as it sides too much on the side of public disclosure, ignoring valid consumer privacy concerns.

Under the final policy guidance, the CFPB will make all of the HMDA data available to the public on an application-level basis, except as follows:

  • The following information would not be disclosed to the public (the non-disclosure of the first three items is consistent with prior public disclosure practices):
    • The universal loan identifier.
    • The date the application was received or the date shown on the application form (whichever was reported).
    • The date of the action taken on the application.
    • The property address.
    • The credit score(s) relied on.
    • The NMLS identifier for the mortgage loan originator.
    • The automated underwriting system result.
    • The free form text fields for the following (the standard fields reported would be disclosed):
      • The applicant’s race and ethnicity.
      • The name and version of the credit scoring model.
      • The principal reason(s) for denial.
      • The automated underwriting system name.
  • The CFPB will disclose in a modified format the loan amount, age of the applicant, the applicant’s debt-to-income ratio, the property value, the total individual dwelling units in the property, and for a multi-family dwelling the individual dwelling units that are income-restricted.
    • For the loan amount, the CFPB will disclose:
      • The midpoint for the $10,000 interval into which the reported value falls, such as $115,000 for amounts of $110,000 to less than $120,000. (Under prior requirements the loan amount was reported to the nearest $1,000, and the reported amount was disclosed to the public.)
      • Whether the reported loan amount exceeds the Fannie Mae and Freddie Mac conforming loan limit.
    • For the age of the applicant, the CFPB will disclose:
      • Ages of applicants in the following ranges: Under 25, 25 to 34, 35 to 44, 45 to 54, 55 to 64, 65 to 74, and over 74.
      • Whether the reported age is 62 or over. For purposes of the Equal Credit Opportunity Act, a person is considered elderly if they are age 62 or over.
    • For the debt-to-income ratio, the CFPB will disclose:
      • The reported debt-to-income ratio for reported values of 36% to less than 50%, and other debt-to-income ratios in the following ranges: under 20%, 20% to less than 30%, 30% to less than 36%, 50% to less than 60% and 60% or higher. As proposed, the reported debt-to-income level would have been disclosed for reported values of 40% to less than 50%.
    • For the property value, the CFPB will disclose the midpoint for the $10,000 interval into which the reported value falls, such as $115,000 for amounts of $110,000 to less than $120,000.
    • For the total individual dwelling units in the property, the CFPB will disclose:
      • The reported number of units for reported values below 5, and other unit numbers in the following ranges: 5 to 24, 25 to 49, 50 to 99, 100 to 149 and over 149. The CFPB had proposed to disclose the actual number of units reported.
    • For the individual dwelling units in a multifamily property that are income-restricted, the CFPB will disclose the reported value as a percentage, rounded to the nearest whole number, of the value reported for the total individual dwelling units. The CFPB had proposed to disclose the actual number of units reported.

Although the loan amount will now be reported in the applicable $10,000 interval and not to the nearest $1,000, the concern is that the totality of the information that is publicly available will make it easier than it is today to determine the identity of the applicant. Thus, based on the final policy guidance, there is a risk that a significant amount of information that consumers view as being confidential will become publicly available. The CFPB essentially dismissed most privacy concerns raised by parties commenting on the proposed policy guidance.

While the final policy guidance favors public disclosure over consumer privacy concerns, the final policy guidance may have a limited life. As previously reported, the CFPB has indicated that it plans to reopen HMDA rulemaking to reconsider various aspects of the revised HMDA rule, including the discretionary data points that were added by the CFPB. We noted previously that the CFPB’s Fall Rulemaking Agenda has a target of May 2019 for the issuance of a notice of proposed rulemaking. Potentially, the CFPB may eliminate entirely, or modify, one or more data categories that are included in the information disclosed publicly. The CFPB states as follows in the supplementary information to the final policy guidance: “The Bureau intends to commence a rulemaking in the spring of 2019 that will enable it to identify more definitively modifications to the data that the Bureau determines to be appropriate under the balancing test and incorporate these modifications into a legislative rule. The rulemaking will reconsider the determinations reflected in this final policy guidance based upon the Bureau’s experience administering the final policy guidance in 2019 and on a new rulemaking record, including data concerning the privacy risks posed by the disclosure of the HMDA data and the benefits of such disclosure in light of HMDA’s purposes.” Thus, in addition to reconsidering the HMDA rule itself, the CFPB already plans to reconsider the approach to public disclosure taken in the final policy guidance.

The adoption of policy guidance that favors public disclosure over consumer privacy appears contrary to the approach of former Acting Director Mulvaney. Perhaps the action reflects that Director Kraninger will take a different approach. Or perhaps Director Kraninger simply decided to initially punt on the issue. The guidance needed to be adopted in view the impending March 1 filing deadline for HMDA data. But as noted above, the CFPB intends to revisit both the HMDA rule itself and the policy guidance. Perhaps Director Kraninger will reassess the approach during the upcoming rulemaking.

Note that while the approach to the public disclosure of HMDA data is adopted in the form of public guidance and not a formal rule, the CFPB advises in the supplementary information to the guidance that pursuant to the Congressional Review Act it will file the guidance with Congress. As we previously reported, the Government Accountability Office determined that the CFPB bulletin on “Indirect Auto Lending and Compliance with the Equal Credit Opportunity Act” was a rule subject to the Congressional Review Act, and subsequently under the Act Congress passed, and President Trump signed, legislation disapproving the bulletin. Presumably, this result influenced the decision of the CFPB to file the policy guidance with Congress under the Act.

As previously reported, late in 2018 the CFPB announced the availability of a beta version of a Home Mortgage Disclosure Act (HMDA) data platform for companies to test the filing of 2018 data. The CFPB has now announced that the beta testing period is closed and the HMDA data platform is open for the filing of 2018 data. The HMDA data platform can be accessed here.

All test data that companies uploaded during the beta testing period has been removed from the data platform. However, all user accounts created during the 2018 beta testing period, and also for the filing of 2017 data, will be maintained for the 2018 filing period. The reporting deadline for 2018 HMDA data is March 1, 2019.

As previously reported, in early December 2018 Congress passed another short-term extension of the National Flood Insurance Program that was scheduled to expire on December 21, 2018. On December 21, the US House of Representatives agreed to a bill adopted by the US Senate in November 2018 to extend the Program until May 31, 2019, and President Trump signed the extension on December 21. Earlier that day, an effort in the House to both extend the Program until May 31, 2018 and make additional changes, failed.

But the drama was not over. Based on the partial government shutdown, the Federal Emergency Management Agency (FEMA) announced on December 27, 2018 that it had sent a message to its industry partners providing guidance to suspend flood insurance sales operations as a result of the lapse of funding. The announcement drew criticism from various parties, and on December 28, 2018 FEMA announced it was rescinding the prior guidance and was resuming the sale of new flood insurance policies and the renewal of expiring policies.

The CFPB has made available a beta version of its 2018 HMDA data platform. The platform is for the reporting of data collected in 2018 that must be reported in 2019.

During the beta period, reporting institutions can test and retest 2018 HMDA data files as often as desired to assess if their Loan Application Register (LAR) data complies with the reporting requirements outlined in the Filing Instructions Guide for HMDA data collected in 2018.

No 2018 data can actually be submitted through the platform until January 2019. Based on the substantial changes to HMDA data for 2018, testing whether LAR data complies with the reporting requirements will likely be beneficial for many reporting institutions.

The CFPB recently filed a complaint and a proposed stipulated final judgment and order to address claims that Village Capital & Investments LLC (Village) engaged in deceptive acts and practices in the solicitation of veterans for mortgage refinance loans to be guaranteed by the Department of Veterans Affairs (VA).

The CFPB asserts that between March 2017 and August 2018 Village employed loan officers in its San Antonio, Texas office who were responsible for making in-home sales presentations to veterans for VA Interest Rate Reduction Refinancing Loans to be made by Village. This type of loan is the VA version of a streamlined refinance loan that is primarily intended to provide a veteran borrower with a lower interest rate and monthly payment. The CFPB states that Village provided the loan officers with marketing materials for the in-home presentations, including a worksheet that would be used to compare the veteran’s current loan with a proposed refinance loan.

The CFPB asserts that that the worksheets were deceptive because they misrepresented the cost savings to the consumer of the refinanced loan by:

  • Inflating the future amount of principal owed under the veteran’s existing mortgage loan by underestimating the proportion of the consumer’s existing monthly payment that is applied to principal.
  • Underestimating the future amount of the monthly payments on the proposed refinance loan by overestimating the term of the loan.
  • Overestimating the total monthly benefit of the proposed refinance loan after the first month.

Without the adjudication of any issue of fact or law, to settle the matter Village agreed to pay $268,869 for the purpose of providing redress to affected consumers, and also agreed to pay a civil penalty of $260,000. Village further agreed not to misrepresent to consumers in connection with the offering of refinance loans (1) the future principal or future monthly payments owed on the consumer’s existing mortgage loan, or (2) the future principal or future monthly payments a consumer would owe on a refinance mortgage loan. Additionally, Village must develop a compliance plan that includes training for loan officers.

As previously reported, the National Flood Insurance Program was scheduled to expire on November 30, 2018 and Congress extended the Program to December 7, 2018. The US House of Representatives and US Senate have once again voted to temporarily extend the Program, this time until December 21, 2018. Perhaps Congress is hoping that someone will come down the chimney and deliver a long-term, sensible reform of the Program.

The CFPB recently issued revised versions of the small entity compliance guides for the Loan Originator Rule and the Home Ownership and Equity Protection Act (HOEPA) Rule.

While some of the most well-known provisions of the Loan Originator Rule are the provisions addressing loan originator compensation, the rule also defines the concept of a loan originator and addresses qualification and other requirements related to loan originators. Among various changes, the guide for the Loan Originator Rule is revised to reflect (1) the broadening of an exemption from the concept of a loan originator with regard to retailers of manufactured and modular homes and their employees made by the Economic Growth, Regulatory Relief, and Consumer Protection Act (Act), which was adopted earlier this year (2) the process for contacting the CFPB with informal inquiries about the rule, and (3) that the TILA/RESPA Integrated Disclosure (TRID) rule is now in effect (the prior version of the guide was issued in March 2015 and the TRID rule became effective in October 2015).

Among various changes, the guide for the HOEPA Rule is revised to reflect (1) the broadening of the exemption from the concept of a loan originator made by the Act (which is noted above), as this can affect the requirement to include loan originator compensation in points and fees for purposes of the points and fees threshold under the HOEPA rule, and (2) the process for contacting the CFPB with informal inquiries about the rule.

Note that for purposes of the points and fees cap to determine qualified mortgage loan status under the ability to repay rule, the definition of “points and fees” set forth in the HOEPA rule is used. As a result, corresponding changes likely will be made to the provisions of the small entity compliance guide for the ability to repay rule to reflect that the Act’s broadening of the exemption from the concept of a loan originator with regard to retailers of manufactured and modular homes and their employees may affect the calculation of points and fees for qualified mortgage purposes. The current version of such guide was issued in March 2016, and the version of the guide on the CFPB’s website includes a notice that the guide has not been updated to reflect the Act.